What is cash settlement in options?

Cash settlement in options is a method where the buyer of an option contract can exercise their right to receive the underlying asset, such as a stock or commodity, in the form of cash rather than the physical delivery of the asset.

What is the difference between cash settlement and physical settlement?

Cash settlement of options is a financial reconciliation. Physical settlement reconciles a contract with the underlying asset. A common physical delivery example is a commodity, but it can also be shares of an underlying financial asset such as stock. Option cash settlement payments are made instantly by parties.

What is a cash settlement in insurance?

In options trading, a cash settlement is a policy where an option holder receives the cash value of their position when they exercise the option, rather than the underlying security. This saves them the trouble of having to sell the security on the market, as would happen during a physical settlement.